One Nation, Fueled by Natural Gas

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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With each monthly data release from the Energy Information Administration (there was one on Tuesday) it gets a little clearer. Natural gas has overtaken coal as the main source of electrical power in the U.S.:

Gas Passes Coal

Electricity net generation by source, U.S.

Source: U.S. Energy Information Administration

Gas's lead over coal will keep growing. Coal-fired generating capacity has fallen 15 percent in the past six years, according to the EIA, and while the pace of coal plant retirements has slowed after a record 2015, there are still a lot of shutdowns planned in the next few years.

A fracking-driven production boom that's lowered gas prices is one reason; tougher environmental rules for power plants (mainly having to do with mercury and air toxins, not carbon emissions) are another. Coal has been caught in a pincer movement between the frackers and the Environmental Protection Agency.

The shift is even more dramatic if you look at it over the long haul. Here are the country's five biggest sources of electrical power as of 2016, and how they've risen or fallen since 1973.

Where We've Been Getting Our Juice

U.S. electricity net generation by source, trailing 12 months

Source: U.S. Energy Information Administration

There are a couple of interesting lines missing in the chart. One is petroleum (comprising both fuel oil and petroleum coke, a solid byproduct of oil refining) which was the country's No. 3 energy source for electrical power generation in 1973, and was in second place for a few years after that. The energy crisis of the 1970s left oil much more expensive relative to gas and coal, and power companies gradually switched away from it. Now it accounts for less than 1 percent of electricity generation in the U.S.

Then there's solar, which seems to get the most attention among renewable energy sources but has yet to become a major factor in electricity generation. If you include distributed generation from solar panels on homes and businesses, which the EIA started estimating last year, it has recently passed wood and wood-derived fuels to become the nation's sixth biggest source of electrical power. But it's nowhere near as important as wind (which is itself on the verge of passing hydroelectric to become the No. 4 electricity source).

Wind Is Way Ahead of Solar

U.S. electricity net generation by source, trailing 12 months

Source: U.S. Energy Information Administration

* Includes distributed generation from January 2014 onward

So that's the data. What to make of it? I'm not going to get into the pros and cons of coal or nuclear or hydroelectric or wind or solar here. That gets done a lot already, and I don't want to go on forever. But I am interested in this country's ever-increasing dependence on natural gas. It was already the main heating fuel. Now it is also the main source of electricity. It still trails petroleum as the country's leading overall source of energy (automobiles need lots of fuel), but has been getting closer and closer over the past decade.

Natural gas is the cleanest-burning of the fossil fuels, although it does have some environmentally worrisome leakage issues. The hydraulic fracturing techniques that enable drillers to extract gas from shale deposits can sometimes make big messes too. Thanks to fracking, gas is currently abundant in the U.S., and quite cheap. Its pricing can be pretty volatile, though.

Natural Gas Prices Can Jump Around

Citygate price* per thousand cubic feet

Source: U.S. Energy Information Administration

*The average price that gas utilities pay

A new development is that the U.S. gas industry is becoming increasingly connected with global markets. The first tanker of U.S. liquefied natural gas to leave the Gulf Coast destined for East Asia passed through the newly widened Panama Canal this week. That opens up yet another source of demand. Could it mean higher prices? We'll see.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
Read more